EL Nino in 2014 might impact Indian Economy

Monsoon in India is not only cyclic or annual feature but our entire agriculture output is dependent on these rains.

EL Nino is expected this year and can impact our economy big way.

MBA Aspirants are expected to understand the critical assessment of El Nino and its possible impact on Indian economy.

Following general awareness article on ‘El Nino’ will help you in WAT/Essay/GD and PI also.

Read:El Nino in 2014 might impact Indian Economy

The Monsoon is a phenomenon which happens because of asymmetric heating of land and sea across the earth. This potential difference results in winds which reverse seasonally. These winds are different in a way that it results in precipitation. Monsoon is also referred as the rainy phase of a seasonally-changing pattern.

To predict monsoon every year is a tough task. Meteorological organizations around the world are involved in creating simulating models, collecting the data and analyzing it to forecast reliably. One of the key finding is that, among of the various phenomena and variables that could impact monsoon, El Nino is one of the prominent among them.

El Nino is a 'warm' ocean current originating along the coast of Peru in continent of South America that replaces the usually 'cold' Peru or Humboldt Current. This warm surface water current reaching towards the coast of Peru with El Niño is pushed westwards by the trade winds. This raises the temperature of the southern Pacific Ocean. A reverse condition is known as La Niña.

In short, El Nino occurs when the waters in the equatorial pacific region become warmer than normal. On the other hand, La Nina occurs when the equatorial pacific becomes cooler than normal. Now the question is how it impacts the Indian Monsoon. The answer lies in understanding of El Nino via another phenomenon called as ‘Southern Oscillation’.

Southern Oscillation is the seesaw relationship of atmospheric pressures between Tahiti and Darwin, Australia. It has been noticed that when it was high pressure in Tahiti, it was low pressure in Darwin and vice versa. A Southern Oscillation Index (SOI), based on the pressure difference between Tahiti and Darwin, has been formulated by the Bureau of Meteorology (Australia) to measure the strength of the Oscillation. It was first observed by Sir Gilbert Thomas Walker, Director-General of Observatories in India.

Walker noticed that the quantity of rainfall in the Indian subcontinent was often negligible in the years of high pressure at Darwin (and low pressure at Tahiti) which is called El Nino. Conversely, low pressure at Darwin (La Nina) increased precipitation in India. Thus he established the relationship of Southern Oscillation with quantities of Monsoon rains in India.

In short, El Nino has an adverse impact on the Indian Monsoon whereas La Nina has a favorable impact on Indian Monsoon. This year IMD and other organizations have noticed El Nino phenomenon developing in Equatorial and tropical pacific.

If El Nino happens this year, then IMD has forecasted that rainfall this monsoon could be below normal. The normal monsoon, according to Indian Meteorological Department (IMD), is 96- 104 per cent of the long period average. The South-West monsoon months are between June and September in India.

There is a possibility that if other phenomenon that impacts monsoon does not get worsened then this may neutralize the adverse effects of El Nino to some extent. But the probability of neutralization is low.

India is a country where 50 to 60% of population is directly or indirectly dependent on agriculture sector. Moreover, almost 50 – 60% of the agricultural lands in India is rain fed and not irrigated. Therefore, there are always huge stakes involved in monsoon phenomenon.

If monsoon is below normal, then agricultural output of food grains, food and vegetables will be much lesser this year. If supply is lesser, demand remaining the same, then food prices will rise. Food articles have more than 25 % weight age in Wholesale Price Index and even more in other indices that measure inflation.

In economics, there is concept called as wage-price spiral. It means that if prices rise in an economy, it will have a cascading effect on all commodities. Due to this, workers demand more wages to maintain their living. Now if the wages also rise, it will also result in price-rise of those commodities also where there is no component of food involved. If wages rises beyond a certain point, it reduces the productivity of a country, which is even more dangerous in an era of globalization.

So, a weaker monsoon may mean higher inflation. India is already reeling under high inflation for last five years. Now, to fight inflation, RBI has been increasing interest rates to reduce money supply. This hampers investment activity in the industry as borrowings become costlier. And finally the GDP growth rate slows down.

In agriculture sector, many areas may face drought and can lead to farmer suicides. El Nino cannot be controlled. The only panacea in the long run is to increase irrigation and reduce dependency on rains. For this inter-linking of Indian rivers is required which has been very slow in India. It needs to speed up.